James and Lachlan Murdoch in First Interview Atop Fox: Politics, Roger Ailes, Dad and Plans for the Future (Exclusive)

The brothers, who took over the 21st Century Fox empire July 1, sit down together and open up about who's in charge, sister Liz, the new age of television and whether their rebellious spirit can create the next great media era.

This story first appeared in the Oct. 30 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

It's Oct. 8, a scorching hot afternoon on the Fox Studios lot in Los Angeles, and it's been less than 24 hours since Rupert Murdoch made news by tweeting about Republican presidental candidateBen Carson: "What about a real black President who can properly address the racial divide? And much else." The comment is being dissected, interpreted and mocked on television and online, just like nearly every move made by the legendary 84-year-old media mogul. But perhaps no Murdoch machination has been more analyzed than his plan to elevate his family members to succeed him atop 21st Century Fox, the television and film behemoth that includes the Fox network; cable channels Fox News, FX and Nat Geo; Fox Sports; a share of the Sky pay TV services throughout Europe; and thriving film and TV studios here in L.A.

That family drama came to a head in June when Murdoch announced that James Murdoch, 42, the youngest of his four grown children, would become CEO of the company, and Lachlan Murdoch, 44, would become executive chairman, a title Rupert also would retain. (News Corp, the company that Murdoch built from a single Australian newspaper into a global power until he split it in 2013 after fallout from the phone-hacking scandal at his U.K. newspapers, now houses such publishing assets as The Wall Street Journal and New York Post, and is managed separately, with the bro­thers on the board.) Today, on the fifth floor of Building 100 on the lot, with Fox News and Nat Geo both playing on wall-hung TVs, the next generation of Murdochs enters an executive conference room.

This is James and Lachlan's first sit-down interview together since news of their ascension leaked in a classic Murdochian drama, with rival CNBC first reporting the transition, followed by a Fox Business Network anchor declaring that Fox News' longtime leader Roger Ailes (who has said he doesn't have much of a relationship with the younger Murdochs) would continue to report to Rupert, a claim that would soon be refuted in an official 21st Century Fox statement. The legion of Murdochologists in the media then piled on with analyses and King Lear analogies detailing the rivalries and supposed power struggles that led to this new regime. "You don't want to get into a position where you're obsessing over what people are saying — is this fair, is that unfair, etc. — because people are going to write what they are going to write," says James of the coverage. "The key for us, and for me personally, is just focus on the job, focus on trying to make the right decisions, and over time your track record bears itself out."

But speculation comes with the family name for the Murdochs, whose Fox empire generated $29 billion in revenue in fiscal 2015 and $6.7 billion in profit (its stock was down about 12 percent on Oct. 18 since the brothers took over July 1, amid a broad media sell-off this summer due to cord-cutting fears). Fox's film studio — home to Avatar, X-Men and current hit The Martian and now run by Jim Gianopulos — has a legacy that dates to the origin of Hollywood, William Fox and the Zanuck family. And its television operation — run by Peter Rice, with Fox Sports (run by Eric Shanks), Empire (from Fox Television Group, run by Dana Walden and Gary Newman), Fargo (FX Networks, run by John Landgraf) and Ailes' Fox News, whose Aug. 6 Republican debate was watched by 24 million viewers — dates to when Rupert, in characteristically ballsy fashion, launched a fourth broadcast net­work in 1986. James and Lachlan say they share their father's appetite for strategic risk-taking, and the faded arm tattoos visible when they roll up their sleeves are further evidence of a rebel streak that both brothers have displayed in the past: Lachlan left the company in 2005 and returned to Australia for a decade; James, in his youth, quit Harvard, dyed his hair and started a hip-hop label (he also stepped down as chairman of News International in 2012 amid the hacking scandal at the now-shuttered News of the World).

But now, as the new Murdoch era begins, James, his wife, Kathryn, and their three children are based in New York, and Lachlan and wife Sarah recently moved to L.A.'s Mandeville Canyon with their three kids. The bicoastal brothers say they are ready to face significant challenges together as 21st Century Fox charts a course in a dramatically shifting environment. "The potential is there, as the sons have good energy and probably a better understanding of changing media consumption habits," says analyst Steve Birenberg of Northlake Capital Management.

In an hourlong Q&A with The Hollywood Reporter (edited excerpts of which are below), no question is off-limits, from plans for their first big moves to their relationships with their father, sister Liz, Ailes and, perhaps most important, each other. "It's a new way of working together," admits James. "But as partners, so far, so good."

James and Lachlan Murdoch were photographed Oct. 8 on the Fox lot in Los Angeles.

Neither of you is on social media, right?

LACHLAN Correct.

JAMES Not in a public way. You'll never be able to find me. (Laughs.)

But your father is, and he makes news, as he did recently with his Ben Carson tweet. What do you think of that?

JAMES Look, it's a personal platform for him that he values in terms of being able to communicate, and I try not to get involved.

It goes to a larger point. So much of this company has been associated with your dad and his politics. Are you political?

LACHLAN First of all, I disagree with some of the premise of the question in that while externally people have combined the company with our father's personal opinions, which are super interesting, or his politics, they're actually not always the same. We have a huge number of creators in this business, on this lot, a huge number of journalists and editors around the world who have nothing to do with his politics or his thoughts. They make entirely their own decisions.

Your father once said he felt like an outsider in Hollywood. Do you feel that way?

JAMES No, nor does one necessarily need to be an insider everywhere. It's not a distinction that I think about. Whether it's in Hollywood, in New York, London, Australia, wherever, we've always felt very comfortable in the entertainment business.

LACHLAN Frankly, in the last decade, our father's spent a lot of time here [he owned a home in Beverly Hills, and in 2013 he bought the 16-acre Moraga Vineyards winery and estate in Bel Air for $28.8 million]. I'm not sure he would say that again. I think what is intended in that quote also is a matter of where you get your taste from, and it is important in Hollywood and the media to make sure where you get your creative taste and how you think about what audiences will like is not defined by a few square blocks around Pico Boulevard, but actually what's out there in the real world.

What are your own personal tastes?

JAMES For me, pretty populist, I guess. I love Empire. I love [Unbreakable] Kimmy Schmidt. I loved The Martian. I loved The Grand Budapest Hotel — I love everything Wes Anderson makes. I loved American Hustle last year. I'm super excited we're making Joy [with Hustle director David O. Russell]. I watch exotic European sports, so we don't have to talk about that — bike racing and automotive sports.

LACHLAN The other thing, which is true for James as well because we both have young kids, it's great because you start to see a whole lot of stuff that we would never get to watch. You see a lot of stuff, frankly, that the kids are watching online, and it's great to see another way the whole ecosystem's changing.

JAMES I'm an expert in the Clone Wars, but it breaks my heart [Fox released the first six Star Wars films before Disney purchased Lucasfilm in 2012].

"We talk now more than ever — multiple times a day, usually," says Lachlan of his relationship with brother James.

Disney has made amazing strides by picking off smaller fiefdoms. Is that a strategy you think Fox can employ?

LACHLAN Disney has had a great strategy, but it works perfectly for them with the brand extensions and theme parks. You've got to give them full marks for that. For us, we'd be opportunistic, but not at the same level as Disney's been.

JAMES While our focus is on franchise pictures, and franchises are super, super important, … one of the things I'm most proud of is the creative diversity of the film slate and the television production slate. From Homeland to Modern Family to American Horror Story to The Grand Budapest Hotel to The Martian to He Named Me Malala to X-Men and Ice Age and Alvin and the Chipmunks. God help me, it's just … that diversity is really exciting because we want to be a place where someone can say they have a great idea, be it an original concept like Kingsman or a new franchise or superhero movie, we want them to be able to say, "I'm not afraid to bring that to Fox." In some ways, you need to be a little careful with the Street saying these are sure things, because it's just franchise, franchise, franchise. You have to be willing to take creative risks on storytelling. The Martian, it's great storytelling.

You're running this company together. But James, you're the CEO, and that carries with it certain and separate responsibilities, right?

JAMES Yeah, but my brother's executive chairman, and we do this together. My father is executive chairman; he's still involved and is doing great.

How involved specifically is your father now?

LACHLAN He's still the boss, right? His position really hasn't changed. We have our father, and we have our board and ultimately the shareholders. What's happened is a generational transition to new management, and that's very important, but it's been very seamless, and he's still there guarding the company every day.

Why was the decision made for James to be CEO?

LACHLAN It really wasn't an issue for us. We thought it made sense. Functionally, everyone reports to both of us equally. We make the decisions together.

Whose idea was it for Lachlan to be in Los Angeles? The arrangement seems to model how your dad was mostly in New York and COO Chase Carey was in L.A.

JAMES It's different. Look, Chase is a great partner and friend and colleague, [but] it's different in that Lachlan and I are actually partners and equal shareholders in the business and are equals, even though we partner probably in a similar way in terms of the way they worked together. It seemed to make sense to do it this way.

"As a founder and entrepreneur, he will continue to be involved in this business that he’s created," says James (right) of father Rupert, who retains an executive chairman title and still speaks regularly to his sons.

Lachlan, you resisted playing a major role in the company for a while.

LACHLAN I wouldn't say I resisted the company. I wanted to go do my own thing. I went back to Australia for 10 years, built a very successful business that was terrific [he founded private investment firm Illyria Pty Ltd. and built Nova Entertainment into a top Australian radio network], [but] the whole time I remained on the board of News Corp — and after they split, News Corp and Fox.

In a 2008 interview, your father said Lachlan "did not like, or have a happy experience in, Hollywood." True?

LACHLAN I don't think that's true. Honestly, it was a point in my life where it was important to go and do [my] own thing and take a big risk — which I think is important sometimes — and I did, and it worked out really well. It's one of the very best decisions I ever made in my life, leaving the company, and I'd do it again.

JAMES Well, hopefully you won't do it again! (Laughs.)

LACHLAN It's actually led me to be an even better executive for that experience.

Some say you two don't get along and there's bickering during board meetings. True?

JAMES No, not true. Actually, I don't think we bicker.

LACHLAN I don't think we ever disagree.

Oh, please. You're brothers.

JAMES From a strategy point of view, on the board-level stuff, I don't think Lachlan and I have ever had any major — or really any minor — disagreements with respect to where the direction of the business needs to be and how we prosecute that. But we're brothers, we used to fight like cats in a bag. But you know, we were young then. (Laughs.)

LACHLAN I always won, which was good.

JAMES I'm not so sure.

LACHLAN I was bigger back then.

JAMES Yeah, exactly. Not anymore.

Rupert with (from left) children Lachlan, James and Elisabeth, and then-wife Anna in 1989

Your father was willing to bet the company several times by buying the studio or starting the Fox network. Do you share that same risk tolerance?

JAMES It's one of the great qualities of the culture of this company that [it] can take risks — creative risks, business risks. It can do things that other observers might think are impossible or are not going to work, from the Fox network to Fox News to Star TV to Sky to Sky Deutschland and so on.

LACHLAN We have to take risks, right? But that's not to say [we're] going to bet the whole company. Even after the [financial] crisis in '90, '91 [when News Corp nearly crumbled under massive debt], I think even our father says he's not going to take that size of a risk [again]. And the company now has a scale where you don't have to put yourself in a position where you're betting the whole company, but you are going to take a series of carefully thought out but aggressive, creative and strategic risks.

Like what? Have you identified some initial bets or initiatives?

JAMES Lachlan and I are pretty clear on strategy, and I think over the next year or two years, you'll see a record of moving the company forward at a pretty high velocity.

How?

JAMES (Laughs.) We'll have to wait and see.

LACHLAN The [changing] dynamics of the media industry as a whole are pretty obvious. We are develop­ing strategies to deal with those obvious changes.

Let's talk about those changes. International TV is seen as a growth area, and most believe you're going to finally buy the rest of Sky that you don't already own.

JAMES The Sky businesses, we've only just brought them all together into one big European platform [Sky Plc]. That integration is going really well. The company is moving at a very fast pace and has grown in value enormously. We've also been clear that over time, having 40 percent of an unconsolidated asset is not an end state that is natural for us. Right now, we're 100 percent focused on supporting the company to get this integration going and get it done for the business to move forward, so there are no plans on the agenda right now.

James and wife Kathryn, who married in 2000.

How about Time Warner? When Fox made its $80 billion offer, Time Warner CEO Jeff Bewkes told his shareholders that the bid was too low and he was going to raise the stock price. Would you approach him again?

LACHLAN We've moved on from Time Warner. There was a point in time [when] it was a great opportunity, frankly, for both sets of shareholders, but we've moved on.

Does it worry you that Viacom or CBS, post-Sumner Redstone, could merge with Time Warner?

JAMES We're much more focused on operating 21st Century Fox. We're less focused on whatever the daily scuttlebutt is around M&A. For example, with our new partnership with National Geographic [on the Nat Geo cable channel] … we have a broader relationship with the National Geographic Society now, and we think there's huge opportunities to grow the [business], … to really navigate through what is increasingly clear is an exciting new business in streaming television. We look at the digital television consumption we're seeing around these brands. It's growing fast and at a scale already.

LACHLAN It's sort of morbid and somewhat distasteful that there's this general whispering of what happens at Viacom or CBS in the future. For us, that's not something we want to engage in.

Click image to enlarge

True, but a giant asset could become available soon.

JAMES Maybe, maybe not. I don't know their mind or what's going on over there.

Speaking of streaming, James, you suggested recently that TV will move further from an ad-supported model to more subscription. How fast do you see that trajectory and how long will the TV ad model in its current form last?

JAMES Well, I think what I said is we'll continue to have a variety of models — some dual models with advertising — but the traditional conception of advertising as an interruptive format that is sort of scattershot, is something that needs to evolve. We're already seeing that in a digital-streaming envi­ronment where we can create new ad products that are less interruptive, have lighter ad loads, that create a better product experience for customers.

LACHLAN And more engagement for their clients.

JAMES The advertising business could be very strong. [But] the current interruptive model of advertising, of cueing things up down the line and interrupting the programming for 12, 15, 18 minutes, is something that probably won't be tolerable for customers. That's not to say that I think everything is going to subscription. I think you're still going to see a mixed model, but a lot needs to be done. Many [executives] need to show more leadership in pushing forward on ad innovation and particularly around premium, quality video advertising, which is still an incredibly impactful medium for marketers.

Lachlan and wife Sarah, who married in 1999.

What does this mean for the future of the Fox broadcast network?

JAMES First and foremost, the job at hand at the Fox network that Dana [Walden], Gary [Newman] and Peter [Rice] and the whole team are focused on is, how do we make it excellent in terms of putting great programming in front of viewers? We're very excited about the start of the new season. [Through three weeks, Fox is down 5 percent in adults 18-to-49 to an average 1.8 rating this season — but it is down the least of the Big Four networks].

But broadcast seems to be a diminishing model. Do you disagree?

JAMES What I'm trying to say is, I think the health of the Fox network depends on the quality of the programming, and we're really doing stuff creatively that works. The model around it will evolve, and we have to have an appetite for that change. Too often in the industry, we focus on the existing or past business rules and not on the product itself and new business rules and opportunities that are going to emerge from that.

LACHLAN If you look at the quality content we have now — you can take Empire as an example, but you can take a bunch of other examples as well: The linear broadcast distribution or consumption of that show is absolutely changing. Whether it's time-shifting, people watching on Fox Now or watching on Hulu, they're doing that across these different platforms. To James' point on advertising, all these different new technologies, metrics and methods are developing as we speak in real time, and it's important that we stay on top of each one of those changes. Because the number of people watching the hit shows is huge. But we have to reach each one of them and monetize it.

American Idol is ending this season. Will there ever be another show outside of sports that can generate 30 million viewers an episode?

JAMES In the live window? I would never say never. But I would echo what Lachlan said. We're already seeing in a show like Empire or Scream Queens [that] the initial broadcast is a fraction of the total viewership. We're still seeing a high volume of viewers coming to the pilot episode of Scream Queens on Hulu, Fox Now and others. If you add up all of that over the first 30 days, which we're not quite at the end of yet, it's a big, big show.

Advertisers don't necessarily agree, though.

JAMES I think they're starting to.

When news broke of your new roles, 21st Century Fox had to put out a statement saying Roger Ailes will report to you two. How is your relationship with Ailes now?

LACHLAN It's good. We both talk to him all the time. The business he's built, and the channels he's built, are terrific. We have a huge regard for him, and he's done a great job.

James and Lachlan Murdoch

But Roger told THR earlier this year that nobody knows what's going to happen to him or to Fox News once Rupert retires.

LACHLAN Rupert's never retiring. (Laughs.)

But it's no secret that Ailes' relationship is with Rupert. He's said he doesn't really know you guys.

JAMES We have a good relationship with Roger, and it's been a long one. Listen, Fox News is an incredible franchise. We think they're doing a great job.

Can you commit right now to keeping Roger as long as he wants to stay?

JAMES I wouldn't get into discussing with you, frankly, any future issues around what somebody might or might not want to do.

Not what he wants to do, what you want to do …

JAMES Certainly, from my perspective, he just signed a new contract and we're really pleased with that, and we hope he stays for as long as he wants.

LACHLAN He's done a great job.

When you see Donald Trump feuding with Fox News, do you get involved?

LACHLAN We'll always support our editors and news producers, and certainly our journalists. If someone wants to have a feud with any of them, not just Donald Trump, we'll always support our really hard-working and decent journalists. Part of our job is to protect them.

JAMES The strongest thought that I had when I saw the beginning of that [Trump's attacks following the Fox News-hosted GOP debate] was just how awesome Megyn Kelly was.

LACHLAN Yeah, she was great.

A lot of people are wondering what your politics are.

JAMES I can speak for myself — my politics are a private matter. I've never spoken about them publicly. I have some things I get involved in [James co-founded Quadrivium, a foundation that supports "natural resources, science, civic life, childhood health and equal opportunity"], but ultimately my job and our job here is about being able to maintain, create and grow a platform that has a diversity of voices.

James, on a panel at the Cannes Lions International Festival of Creativity on June 25, has spoken at several conferences this year.

The family trust that owns 39.1 percent of the company's voting shares is said to have four votes: the two of you, your sister Elisabeth and your other sister Prudence — and apparently there is no tie-breaker. How is that going to work?

JAMES Look, first of all, the structure of how the family governs the trust, etc., is something for the family to worry about. But we're all very aligned about things going forward. Nothing's going to change there for many years, so it's not something that we worry about that much.

Does it bother you that your sister Liz is not involved in running the company?

JAMES It was definitely a regret when she decided to leave [her production company] Shine after coming into the business [when News Corp bought it in 2011 for $674 million], which we had been really excited about. But she made a choice to go do some new projects, and she's got a bunch of stuff she's doing philanthropically and entrepreneurially and is very happy doing those things. She decided for herself that that was the right thing for her to do, and we're very supportive of that. We're a close family, but she's doing other things now.

It seems like a lot of your focus is on TV. How involved do you guys expect to be at the film studio?

LACHLAN It's not our job to be greenlighting films. That's for the professionals across the road [in the film executive building], but we're going to be driving them as hard as we're going to be driving the rest of our businesses.

JAMES [It's] an industry that's changing quickly. … We have to change the way we think about how we window [movies]. We have to change the way we license programming to third parties or to ourselves. There's a lot of facets of what we have to do in this business, but there's no one piece of it that we're more or less involved in. The business is the business.

Your father recently helped bring Stacey Snider to the studio. Are you comfortable making those kinds of moves on the film side?

LACHLAN Sure.

JAMES Yeah, absolutely. We have to make the decisions that we have to make.

LACHLAN And we do every day.

How much rope are you willing to give James Cameron on the very expensive Avatar sequels? The first of three was slated for 2016, and now it's not coming for at least a year later.

JAMES It goes without saying, Jim is just an incredible filmmaker. I know Jim Gianopulos and everyone at the studio wants him to be able to create something he feels is right.

Unlimited budget?

JAMES I didn't say that. (Laughs.)

Former News of the World editor Rebekah Brooks, with Rupert Murdoch in 2010, was brought back to News Corp as CEO of News UK in September.

Fox always has moved aggressively in sports. Fox Sports 1, by a lot of measures, has been a successful launch, but the ratings aren't huge.

JAMES They're higher than ESPN's this summer.

For the World Cup?

JAMES And some other events. And baseball [playoffs have] been great.

Are you committed to spending the astronomical fees it takes to put the kinds of sports on that make a difference?

LACHLAN We're best when we build businesses, when we're the underdog and when we're competing against an entrenched player that's much bigger — and you can see that in Fox Sports — so, absolutely. We're absolutely committed to continuing to grow it, and that's going to be our main continued investment.

JAMES That doesn't mean that any price is the right price, and we have been very comfortable walking away from opportunities. I think with Fox Sports 1, we're really happy with the packages we have. There's baseball, NASCAR, UFC, golf. It's a very, very strong lineup. You combine the Fox Sports brand with the broadcast [network] sports, the NFL, World Series baseball, the FS1 platform, with everything I just mentioned, and then some regional nets under the Fox Sports brand with the Yankees and the Mets, or St. Louis with the Cardinals, etc. These are things that really drive an enormous amount of viewership.

ESPN has been under scrutiny from Disney and is facing layoffs, and some say the costs the network has incurred and the high subscriber fees actually could come back to bite Disney as we move to an OTT world.

JAMES Yeah, but I think you have to make a distinction between an incumbent [network] that is fully distributed and has been without serious competition for decades and a startup that's a year and a half old. We're very happy to just take [market] share.

LACHLAN When we launched Fox News [in 1996], James and I were much younger, but I do remember the conversations around it. A lot of people internally in the company said, "Why would you launch a news service when there's CNN?" It's the same thing with ESPN.

James, how involved were you in bringing Rebekah Brooks, the indicted but acquitted former editor of News of the World, back to the company?

JAMES Well, Rebekah has gone back to News Corp [as CEO of News UK]. I'm a nonexecutive director there, so I wasn't very involved.

What was the biggest thing you learned from the hacking scandal?

JAMES Every professional experience you learn a lot from. You learn about yourself, you learn about the company, you learn about people's interests around the place. In a situation like that, you learn a lot about politics. It was a very intense period, but you know, what doesn't kill you makes you stronger.

James, you quit Harvard, dyed your hair different colors, got some piercings, founded a rap label. Does any of that rebel remain?

JAMES One hundred and fifty percent of it. (Laughs.) The nice thing about middle age is that you still think to yourself, pathetically, that you're still that guy.